Evercore ISI is gearing up for first-quarter tech earnings by making short-term, bullish calls and a tactical bearish recommendation. Well-known technology analyst Mark Mahaney said underperformance in first quarter earnings is less likely given the negative revisions already seen across the tech sector in recent quarters. And he said the net multiple should see upside, with the median enterprise-value-to-EBITDA ratio of large-cap stocks near a five-year trough. “With the increased likelihood of an H2 recession and a possible Hard Landing … there is still downside risk to estimates,” Mahaney said in a note to clients Wednesday. “But the breadth and depth of estimates cuts in ’22 across almost all Net stocks (an average 70% of stocks seeing material negative revisions for three quarters in a row) does somewhat limit that risk.” With more than three-quarters of all large-cap internet companies having made cost-cutting moves, the analyst said earnings per share and free cash flow growth could accelerate once revenue rates recover. Against that backdrop, Mahaney, an Institutional Investor No. 1-ranked analyst for five years, named two two of his favorite tech names going into first quarter earnings, and one stock to bet against. The buys Mahaney named Meta and Spotify as among his top picks heading into the earnings season, saying the two have the least risk of missing first-quarter estimates. Evercore’s outperform calls on both Meta Platforms and Spotify Technology “are based on the belief that Street estimates revisions are likely to be positive post their EPS prints,” Mahaney said. Wall Street’s consensus for Meta’s first-quarter revenue is reasonable while the second quarter’s is beatable, Mahaney argued. He said the Instagram parent should be helped by seasonal strength and moderating headwinds that affected the same quarter a year ago. Though there have not been any signs of recovery from the slowdown in advertising, Meta’s scale and data advantage make the company more resilient. Meta, which is slated to report earnings April 26, should post a quarterly revenue of $27.4 billion, Evercore said. That’s in line with forward guidance of between $26 billion and $28.5 billion set by the company. META YTD mountain Meta Spotify, which reports earnings on April 25, could be feeling the effect of a cooling ad marketplace on its podcast business, Mahaney said. Spotify had reportedly shuttered its live audio app, Spotify Live, which demonstrating management discipline around costs. But Mahaney said Spotify should see robust marketplace growth, and its premium revenue gross margin expand, as the music streaming platform opens its Discovery Mode feature to more artists. An intra-quarter event also indicated the number of monthly active users — a closely followed metric — could come in above expectations, he said. Evercore expects €3.09 billion in revenue for the quarter, with an operating loss around €194 million, in line with what Spotify said to expect. Both Meta and Spotify have regained ground in 2023 after 2022’s sell-off, but each still trades more than $100 per share below where they ended 2021. SPOT YTD mountain Spotify The short play On the other hand, Mahaney isn’t as optimistic about Airbnb . The Wharton business school grad said first-quarter earnings expectation for the vacation platform are reasonable, but the second quarter is less likely to be beatable. While industry checks were in line with forecasts through the beginning of March, demand appears to have cooled later in the quarter, Mahaney said. That comes as the risk of a recession drives second half downside concerns, especially harmful to travel stocks with high price valuations. “All three of the major Online Travel companies would experience this softness,” he said. “But the stock risk would be greatest with the highest multiple name, and that is ABNB.” Mahaney expects revenue at $1.79 billion for the quarter, placing it within the range of $1.75 billion to $1.82 billion set by Airbnb. The company is expected to report earnings sometime in early May. Airbnb shares have jumped 31.5% this year after losing almost 49% in 2022. ABNB YTD mountain Airbnb — CNBC’s Michael Bloom contributed to this report
